Hardwood Report 2013 - March 2013
By Jessica Chevalier
Hardwood was hit particularly hard by the recession, and it continues to be challenged by capacity issues. However, there is a consensus among hardwood manufacturers that the business conditions are improving. This optimism is due, in large part, to an uptick in new home construction. In 2011, 26% of all hardwood flooring sold went into new homes. In 2013, Market Insights projects that the number will rise to 45%.
Every manufacturer interviewed reported that 2012 was on par with or better than 2011. Hardwood Market Report says, “After a dismal start to the year, manufacturers’ shipments of solid wood flooring ended 2012 8.4% above 2011.” A few manufacturers expected larger gains than they made, but, across the board, every hardwood flooring manufacturer that we spoke with has faith that 2013 will be an up year.
COPING WITH CAPACITY
It will not, however, be a year without challenges when it comes to raw lumber supply. When demand was low, many loggers and sawmills went out of business. Cranking those businesses back up will take time, and, in some cases, it will not happen at all.
Like many industrial-type businesses, logging and sawmilling are often hand-me-down operations that pass from one generation to another. With many logging businesses and mills having closed, the “next generation” of sawmill operators (i.e., the children of former owners) may have found their niche in another business or, perhaps, another industry that isn’t as susceptible to the ups and downs of both the market and the weather. Logging and mill work are hard, risky endeavors, and, in the age of technology, they are viewed by some as less desirable than other types of careers. Don Finkell, former CEO of Shaw’s hardwood business, asks, “Will the next generation view these careers as promising ones to invest in?” The answer to that question is yet to be determined. The risk-reward balance will have to be right for shuttered mills and logging operations to find new life.
The good news is that there should not be a shortage of laborers as business comes back. While unemployment rates are falling, the national rate stands at around 7.9% (as of January), which represents 12 million Americans out of work. Layoffs in the coal industry, for instance, may benefit hardwood business when closed loggers and mills flip their lights back on. Of course, whether the location of the jobs and potential workers align is another question, since it’s hard for people seeking employment to uproot at their own expense for a blue-collar job.
In addition to an ample potential workforce, there is no shortage of trees; in fact, Finkell says that there are more trees available now than in the last 200 years. In some cases, those who own the land are waiting to sell until lumber prices rise—and that time will come. However, weather may also play a role in when the trees are harvested. According to the Hardwood Market Report, “In spite of increasing prices for raw materials, inclement weather will prohibit meaningful improvement in logging and production of lumber. Furthermore, there is intense competition from other industry sectors pursuing materials of the same quality used in manufacturing.”
The lumber capacity issues in the market have led to significant raw material price increases for manufacturers. According to a major West Virginia sawmill, lumber prices for No. 2 and No. 3 common red oak have increased 20% between October and February. These costs obviously squeeze margins and necessitate manufacturer price increases.
At the same time, some manufacturers report that there is still overcapacity in the market with regard to finished hardwood flooring. Imports from China are still wreaking havoc, especially at the low end of the market. Says Dominique Lauzé at Quebec’s Model Hardwood, “You have to work two or three times as hard as you did ten years ago to get the same amount of business.” After the last six years, the good news is, of course, that there is again business to get.
Prior to last year, retail hardwood pricing was consistently moving downward. Even customers who could afford higher priced flooring were buying at the low end of the market. In 2012, as the economy started to improve, the sector showed some growth in higher end products—not huge growth, but a definite trend.
Today, more retailers are taking on higher end lines, and price points are inching upward, albeit slowly. These increases are desperately needed by everyone in the supply chain. Some manufacturers insist that they are not yet feeling any increase, but these are sure to come as new housing continues to improve. Private investments in residential construction topped the $300 billion mark in November and December, and spending in 2012 rose 16.8% over the previous year. Single family spending was up by 19.4%, multi-family by 44.4% and remodeling by 10.8%, according to the Hardwood Market Report.
It looks like hardwood manufacturers are seeing growth across a range of price points. Some manufacturers report that their low and mid-range goods are moving, while others are seeing activity at the high end. Markets Insights projects that 51% of hardwood sold, by dollar value, will be engineered in 2013.
Once again, activity in the housing market means that some degree of relief is around the corner. During the recession, when builders couldn’t get loans, many traded down on their finish materials, opting for lesser quality hardwood flooring—with the goal of simply making a sale, at any price point. Today, as the market comes back, builders are able to borrow again, and they are looking to differentiate their houses from other new homes on the market. To that end, they are choosing better finishes. At the same time, buyers are also becoming more comfortable spending again, and they want a nicer product for their dollar. Manufacturers report that designer-driven products at competitive prices are appealing to today’s consumer.
Style trends vary widely across the country. However, in our interviews with manufacturers who, it should be noted, serve a wide variety of markets, price points and channels, a number of design directions emerge.
To start, European design is having a significant impact on U.S. hardwood flooring style right now. America has long been a brown wood market, but that is changing. The wide plank, oil-rubbed looks popular in the European market have made their way to the U.S. and are making an impact. With our busy lifestyles and no-fuss approach to the home, oil-rubbed products are generally seen as too high maintenance, so U.S. manufactures have recreated these looks using processes that require less upkeep.
The greys and whitewashed colors in the market are a result of this trend, as are the wide widths. The impact of grey is not only seen in explicitly grey products. The undertones of brown wood have shifted from red to grey. Red tones, long American favorites, have become much less popular in the last few years.
Five-inch widths are no longer a niche product, as they were a few years ago; they are a commonplace offering. And 7” widths are very popular among fashion-forward consumers and the A&D community. Johnson Premium Hardwood, for instance, now offers a 71/2” x 7’ plank as part of its standard line. The higher price tag that comes with wider width products has inhibited them in the market somewhat, but some companies, Armstrong for instance, are now working to make a 5” wide product at a more competitive price, though it will still be more expensive per square foot than a comparable 3” wide product.
Rustics continue to soften. Some areas of the country still like rugged handscraping (in particular, Texas) but the broader trend is towards wire-brushed looks and soft scrapes. Quite a few manufacturers also noted a resurgence of hickory.
There are varying opinions among retailers about whether consumers care about the species of the wood that they are buying. Regardless, it’s clear that color and style—in other words, fashion—are always the top priorities.
There have been quite a few changes to distribution as a result of the recession, when everyone began looking for means of squeezing an extra dollar from the market. Some distributors, particularly in the low end of the wood business, have started doing their own importing. This presents a competitive challenge for manufacturers who have traditionally sourced their products from overseas to sell through the traditional distribution channel. So to compete, some manufacturers and importers have now started selling around distribution, directly to the retailer.
Once the market stabilizes, we may see fewer of these departures from the standard way to market. However, the business will likely have to live with the decisions that have already been made.
Two things are certain with regard to these movements. First, fewer layers in the channel results in lower prices for the end user, at least in the short term, or, alternatively, one player gets a larger piece of the pie. And, two, fewer players in the market is ultimately not a good thing for consumers.
Do manufacturers who go to market through distribution have an advantage? Some would argue yes, because buying products from a distributor that carries multiple lines means streamlined ordering and shipping savings for the retailer. In addition, the manufacturer can hand over the sales side of the business to the experts (those with experience and contacts), and focus on what they do best, manufacturing goods.
However, there are also advantages to going direct, because the manufacturer can know with certainty that its sales staff is giving the product the attention it deserves. In addition, manufacturers can better control their message to the retailer and, therefore, the end-user. For each firm, it’s about balancing its needs with the greater good as it relates to the consumer.
Lumber Liquidators has continued to take marketshare because of its unique business model that eliminates the sales middlemen. “The firm relies on call centers at its Toano headquarters, web sales, and a number of strategically placed warehouses to expedite 25 different domestic and foreign types of wood to buyers, 90% of whom are homeowners,” according to “Lumber Liquidators: What recession?” an article by Peter Galuszka. In 1999, when demand outpaced its sourcing capacity, the company built its own 80,000 square foot wood flooring manufacturing facility in Virginia. Currently, Lumber Liquidators is shifting from small stores in industrial type settings, its standard, to larger locations in better areas, which will likely make it an even stronger force in the market.
Mannington characterizes 2012 as better for the hardwood industry but not yet good. The company believes that it exceeded the industry standard for the year due to, first, having the right products at the right price points and, second, focusing more on regional trends and developing region-specific displays and marketing programs.
The company manufactures the majority (85% to 90%) of its hardwood products in High Point, North Carolina and sells engineered hardwood through independent retailers and flooring contractors. Nearly all of the company’s hardwood is prefinished.
Mannington introduced its American-made LockSolid mechanical locking system in 2012 and has seen success with the products, which target retailers with a cash-and-carry business and high-rise residential. The line consists of smooth looks in oak, maple, hickory and walnut.
Mannington started making more of an effort with its commercial hardwood business in 2009. The business has exhibited growth since then, and the company considers it a good add-on.
Armstrong, the largest domestic hardwood producer, believes it grew share in 2012, in spite of challenges due to raw material costs, and the company is taking a bullish approach in regard to 2013. Though Armstrong raised prices in December to cope with the raw material increases, the company says that it is still addressing cost now. It instituted another price increase in January.
Armstrong launched two lines in 2012 that have performed well in the market, Performance Plus and American Scrape. Performance Plus started as a commercial product called Premier Performance and was reengineered to make it less costly and more visually appealing to consumers. American Scrape, a U.S. made engineered line with the look of a vintage handscraped floor, is being expanded into solid this year.
Armstrong sells both engineered and solid hardwood flooring—more on the solid side—and 100% of its products are prefinished. The company offers a Välinge locking system for some of its engineered products. Bruce branded hardwood is sold in all channels, while Armstrong is targeted specifically to independent retailers.
Commercial business is a small part of Armstrong’s hardwood revenues, though the company does have specification writers in the field engaging that business, and the company says that it can cover any commercial wood flooring need with its portfolio of products.
Percentage-wise, Model increased both its engineered offering and its prefinished offering in 2012. Both solid and unfinished wood account for less than 10% of business.
Model sells to the specialized flooring retailer and to the builder market. It reports that the builder market considers price more stringently than the retail market, even though the builder market is doing well. Builders like to pay in the low $3 range for their hardwood, but it is hard for manufacturers like Model to reach that price point.
Model sees a great difference in what sells in the Canadian and U.S. markets. In Canada, there is a high demand for birch, which grows in the area. In the U.S., birch isn’t as popular, even though it’s an affordable wood. In the U.S., Model’s maple and engineered flooring sell well.
On the commercial side, Model offers Extreme Finish, which it introduced in 2007. The aluminum oxide based finish comes with a ten-year commercial warranty and is available on all 5,000 of the company’s SKUs. Additionally, the company offers unfinished maple for use in gymnasiums.
All of Model’s products are made in Quebec. The company expected increases for 2012, but ended even with 2011. However, it is optimistic about 2013. Model did not have a booth at Surfaces; however, representatives from the company who attended the show reported more traffic and greater optimism then at 2012’s show. In addition, January 2013 was significantly better than January 2012.
Somerset has long been a purveyor of primarily unfinished solid hardwood. However, in the last few years, the company has put significant investment into its new engineered plant in Crossville, Tennessee, which officially got up and running in 2012. The company is now domestically producing engineered flooring and selling it through its SolidPlus Engineered Flooring program. Products in the line feature long lengths and sawn veneers. The company expects this line to be a major contributor to future growth, quickly overtaking the solid segment, although prefinished solid is currently the company’s area of growth. Somerset is also considering adding a click system.
Somerset started working on its commercial offering in 2012, introducing three- and five-year light commercial warranties for some of its engineered flooring products and rolling out a new specification binder for architects. The binder features QR codes as well. The company also introduced its YourSpec program that allows major products to be made to the customer’s specifications.
In terms of volume of shipments and revenue, Somerset had a good year in 2012, although lumber costs posed a significant challenge.
Somerset, which staffs its own foresters, produces its hardwood flooring in Somerset, Kentucky; Burnside, Kentucky; and Crossville, Tennessee. The company sells exclusively through distribution to retail and believes that its devotion to this channel has helped it weather recent industry ups and downs more easily than other manufacturers.
Shaw recently introduced two new products, which it believes will have great success in the market during 2013. On the Shaw side, American Restoration, a reclaimed look, and under Anderson, Urban Loft, a low gloss wirebrushed look, were rolled out at Shaw’s 15 regional shows, which took place over the first two months of the year.
The company also plans to introduce its first click system this year. Currently, the company is trying to determine which markets are best for the system, which brand will carry the system and how many SKUs will feature it. Shaw plans to offer a large assortment of click system products but not its full product line.
Shaw’s hardwood products are 25% to 35% solid by volume. The company believes that its solid percentage has increased slightly due to its investments in this business.
Shaw branded hardwood sells direct to all market sectors (builders, commercial, home centers and retail). However, Anderson products sell only through wholesale floorcovering distribution. The company reports that business is strong in all sectors. Shaw’s Epic products, which feature an HDF core, have been particularly strong performers. Shaw hardwood flooring is manufactured in South Carolina, North Carolina, Virginia and Tennessee.
Mercier, headquartered in Quebec, services the mid to high end of the hardwood market. The company sells 100% prefinished hardwood flooring and does offer a click system for its hardwood. Mercier sells through distribution to the U.S. In 2012, the company upgraded its Nature collection with the introduction of seven wood flooring series. Last year was a good one for the company, and it expects 2013 to be even better.
Mirage, which has earned a longstanding reputation for quality, launched 61 new SKUs in January, including its new Imagine Collection with a texture that helps hide marks and scuffs associated with daily use. In addition, the company has introduced a new whiter white, called Nordic, and a new grey, called Platinum, as well as additions to its Alive and Sweet Memories collections.
Mirage is split evenly between solid and engineered business, and all its products are prefinished and made in Canada.
The firm’s hardwood is sold though a specialized independent dealer network. Mirage does not sell its products on the Internet. The company reports that its commercial division brought many opportunities in 2012.
In 2012, Boa-Franc, the manufacturer of Mirage Floors, received the Grand Prix Award in the large manufacturing company or subsidiary category, the highest award bestowed by the Quebec government for companies that successfully apply best businesses practices.
Mirage has seen strong sales in its Sweet Memories collection, and its value-added products have been gaining traction in the marketplace.
The largest flooring manufacturer in the world, Mohawk, sells hardwood under two brands, Mohawk and Columbia. Together, 52% of the company’s hardwood flooring sales fall in the prefinished engineered category. Last year, however, solid introductions exceeded engineered introductions. Under the Mohawk brand, one new line was solid and one engineered. In Columbia, three new solid lines were rolled out, as were two engineered lines. The company’s ArmorMax recently won the National Association of Home Builder’s 2013 Best Of Show Indoor Feature award.
Mohawk saw its click hardwood business grow consistently in 2012. Industry wide, click sales accounted for 10% to 15% of hardwood flooring sales last year, but Mohawk exceeded that. Both Mohawk brands (Mohawk and Columbia) introduced new click products last year. Currently Mohawk has five different collections offered with its Uniclic Click & Press glueless installation system. Columbia has two.
Mohawk’s brands go to market differently. The Columbia line, which is 100% U.S. made, is sold through distribution. The Mohawk line, the majority of which is also made domestically, is sold directly to retailers via Mohawk’s sales force as well as through home centers.
Mohawk reports that there was an uptick in the sale of domestic exotics last year. Quite a few of the company’s 2012 introductions are in this vein. The company also sells an acrylic impregnated hardwood floor for light to medium commercial use called DuraBeauty. The product is 50% harder than standard hardwood.
Max Windsor had a good year in 2012, with business up 20%; however, more importantly for the company, it was able to develop strong partnerships with new retail accounts. In response to these new partnerships and business increases, the company opened two new warehouses, one in Dallas and the other in Orlando.
In early 2013, the company published ads reading, “Square Pegs Don’t Fit In Round Holes And We Don’t Fit with Internet Dealers.” The company reports that, as a result of these ads, 15 or 20 retailers, some large, told them to “get lost,” but 100 times more thanked them.
Max Windsor imports 100% of its products from Asia. Previously, the company sourced everything from China, but it has now expanded to other Asian partners as well. The company’s line is 100% engineered and prefinished. The firm sells some unfinished wood by the container to a few customers, but those products are not in the running line.
As of right now, the company does not offer a click system on its hardwood products—though it does on its luxury plank flooring, a vinyl product. Because the company’s wood business is so strong and because it does not do business with boxes, it doesn’t see a demand for a click system for hardwood, especially because its dealers like being able to make revenue off of installation.
Max Windsor believes that the standard brown board is “becoming almost, by definition, a commodity product,” says Peter Spirer, head of sales and marketing for the company. For that reason, the company has invested significantly in products with grey undertones. Its new white oak Magique line, eight colors on wide, long boards, caters to this new aesthetic.
QEP launched the Harris Cork brand last year. Thus far, the collection, which is sourced from Portugal, includes 12 products. Nine of these are high end, featuring a ceramic finish, while the other three are introductory items. At 48”, Harris Cork products are longer than standard cork planks. Visuals for the products vary; some are organic looks, a few others resemble stone and yet another mimics bamboo. Rather than introduce cork under the Harris Wood line, the company is keeping the products separate. The brands will always be displayed separately.
QEP’s Harris Wood line, all U.S. made, is about 80% engineered product. Though the company has seen an increase in sales of its unfinished engineered flooring, it is still 97% prefinished.
Harris Wood sells through distribution and big box retailers. In 2012, it saw a significant sales increase in both channels, but greater growth is anticipated for 2013.
The company released two new wood collections at Surfaces, Aspen and Highlands, which received a very favorable response from attendees.
DuChateau, which is known mostly for its oiled finish look, won several awards last year. The company was recognized by Inc. Magazine’s Inc. 5000 list as one of the fastest growing companies in the U.S., coming in at #1011, and as #39 in the top 100 construction companies category. In addition, Interior Design Magazine named its Heritage Timber Edition product Best of the Year 2012 in the hard flooring category.
DuChateau manufacturers engineered floors—90% of which are prefinished—in a variety of plants around the world, including in Holland and Russia. The company focuses primarily on wide-plank European oak floors and sells through distribution and to commercial accounts, including hotels, restaurants, corporate office space and retail.
The company notes that it has found that sales of its products are more fashion-driven than price-driven, though the company does offer products and price-points for all customers.
California-based Johnson Premium Hardwood focuses on exotic hardwood flooring. The company offers prefinished flooring exclusively, 70% of which is engineered. Last year, the company launched its English Pub series, which features 7’ long and 71/2” wide planks. The planks are made of character grade maple and are offered in five stains.
Though the company reports that products at low-end price points are selling best, it has seen success with a few recently debuted exotic wood products that are in its upper tier of pricing.
Johnson Premium Hardwood sources its woods from the U.S., Canada, South America and Indonesia; treatment and hand-sculpting is completed in China. The company sells through distribution and also has a growing commercial business that has increased steadily over the past year.
Healthier Choice started selling solid hardwood last year and, at Surfaces 2013, introduced eight new engineered click SKUs on HDF cores. All products, both engineered and solid, are prefinished.
Currently, all Healthier Choice hardwood products are made overseas, but the company is now in conversation with an East Coast manufacturer. Healthier Choice sells its hardwood through distribution where it has established relationships and goes direct to retailers in areas where it does not.
The company considered 2012 a “jumping in” year, in which it spent a lot of time on sample placement and new product development. Based on its response at Surfaces and feedback from existing customers, the company has a good outlook for 2013.
For Home Legend’s hardwood business, 2012 was a good year. The company saw revenue growth and launched new SKUs in both bamboo and hardwood.
Home Legend sells only prefinished product and has elected not to enter the unfinished market for two reasons. First, because, according to the company, there appears to be no bottom to pricing in unfinished wood and, second, because domestic manufacturers control the segment. Eighty-five percent of the company’s hardwood products are engineered.
Home Legend partners with strategic Asian manufacturers and services both the big box and specialty retail channels. The company sells direct and has distribution facilities in California and Georgia, and it reports vibrant business in both channels. Its HDF Click hardwood and bamboo products have shown significant growth.
At Surfaces 2013, Preverco unveiled a new hardwood brand positioning: Preverco, Creating Ambiance. This includes a website and communication tools that eliminate technical jargon. The product lines are now grouped into three simplified collections, and the various wood grades are replaced by appearance descriptions that evoke the look of the wood (pure, nuance, variation and variation with knots). The website features a selection tool that allows users to view hardwood products based on a desired style.
Preverco also launched a new line of oiled products, an XL version of the SolidGenius engineered flooring platform with extra-long, extra-wide boards, available in seven colors.
The company sells both solid and engineered hardwood products and has seen growth in its engineered business. Currently, it has three engineered platforms as well as three others under development. Most of its products are prefinished, and the company does have a locking system, its PreLoc using Välinge technology.
Preverco sells direct to specialty retailers in the U.S. and Canada, and its products are manufactured in Quebec. The company offers products at mid to high level price points and also has builder grade products. The firm reports that the upper end of the market is growing the fastest currently.
Preverco had a strong 2012 and expects a fruitful 2013 as a result of its new marketing efforts.
Quebec-based Lauzon sells both solid and engineered hardwood, which it manufacturers in Canada. The firm is split evenly between the two hardwood types. Lauzon sells to the specialty retail channel through one-step and two-step distribution. The company offers floating floor options as well as products with a light commercial warranty.
Bamboo producer Teragren signed two new distributors in 2012 and is working to nurture these relationships through a regionally specific display program and its new online Preferred Retailer training course. In September, the company launched its new Bamboo Essentials training program to help retailer staff better understand bamboo. In the months since, Teragren has certified several hundred retail locations as Teragren Preferred Retailers.
In January, Teragren introduced its first engineered product that includes a non-bamboo component. Vantage features Xcora strand bamboo over eucalyptus, which results in a lighter material and, therefore, is more efficient to ship.
Last year, Teragren achieved the USDA’s BioPreferred certification for its complete line. This certification verifies that the product’s amount of renewable bio-based ingredients meets or exceeds prescribed USDA levels. The company’s new Xcora strand materials tested at 94% bio-based, and its PureForm traditional materials tested at 99% bio-based content.
Currently, all the company’s products are manufactured in China through an exclusive manufacturing partnership. However, the founders and former owners of Teragren, David and Ann Knight, have launched Resource Fiber, a company that will facilitate the growth and harvest of Moso bamboo in Alabama. Through its partnership with Resource Fiber, Teragren hopes to develop a manufacturing base for its products in the next few years.
All Teragren products qualify for commercial use, where sales are strong, and the company is seeing rising sales in the multi-family market.
Copyright 2013 Floor Focus